The mortgage and housing markets have come a long way in the past decade. Mortgage lending is more than 90 per cent higher than it was in the depths of the financial crisis, while house prices have exceeded their pre-crash peak in most areas.

Yet both markets are currently in a slump, with all the signs suggesting this decline is here to stay for at least the next two years — and maybe longer, according to experts.

While that will be music to the ears of first-time buyers, it will be a painful shock to sellers hoping to make a healthy profit on their home.

So, why the slowdown? And can anything be done to inject some life back in to the mortgage and property markets?

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To understand how sluggish the market is at the moment, it helps to track its progress in the past 10 years.

House prices peaked in October 2007 at £186,044, before the financial crisis s

ent values tumbling. By February 2009 the average property price had fallen by more than 20 per cent, to £147,746, according to Nationwide Building Society.

On a nationwide level, house prices had risen again and exceeded their pre-crisis peak by June 2014. At the time, property values were increasing by nearly 12 per cent a year.

However, that healthy figure masks regional differences in Britain’s housing market. For example, prices in the North, Yorkshire, the North-west, Wales, Scotland and Northern Ireland are still lower today than they were before the financial crisis.

Inflationary pressures have pushed up monthly household costs, which can only have served to dent confidence

The latest figures put the average UK house price at £211,156 — although growth has slowed considerably, according to Nationwide. At the start of 2017, house prices were increasing at a rate of 4.3 per cent annually, it says. By the end of the year, however, the rate was just 2.6 per cent.

Mortgage lending experienced a similar, albeit slower, recovery after the financial crisis. The market had peaked at £357bn in 2007 before slumping to just £134bn in 2010 — a col­ossal fall of 62.5 per cent, according to figures by UK Finance.

In 2013, mortgage lending began to pick up quickly, increasing by 22.7 per cent that year. Between 2014 and 2016, lending continued to grow, at an average annual rate of 11.2 per cent.

However, last year mortgage lending rose by just 4 per cent annually, to £255bn. This was the slowest growth rate for six years, the figures reveal.

What has caused such a dramatic slowdown in both the property and mortgage markets? And, if the experts are right, just how long will the slump continue?

Low wage growth

There are several reasons for the decline, the first of which is most obvious: in some parts of the UK, property values are ludicrously high compared to wages, pricing many buyers out of the market.

Although prices rose by only 2.6 per cent last year, they still outstripped wages, which increased by 2.5 per cent. In some regions of the UK it is simply impossible to afford to buy a home if one is on the average salary of £27,000.

Figures from Nationwide show house prices in London are nearly 10 times average earnings, where the value of the average home has increased by 55 per cent in the past 10 years.

In the South-east, house prices are 6.1 times earnings, and in the South-west the figure is six times. In contrast, prices in the North and in Scotland are 3.3 times earnings, illustrating the huge regional division within Britain’s housing market.

When wages rise more slowly than prices, first-time buyers have to find more cash to put down to qualify for a mortgage. Research by L&C Mortgages reveals the average first-time buyer deposit is now £51,821. However, due to rising prices and lagging wages, this could rise to £65,930 in five years’ time and as much as £81,468 in 2027, according to the firm’s research.

Unsurprisingly, the situation is most acute in London, where the average first-time buyer has to find £139,987 to get on the housing ladder. That amount could rise to an astonishing £244,842 within a decade.

L&C Mortgages associate director of communications David Hollingworth says: “Higher house prices feeding through into pressure on affordability, and more borrowers beginning to give up on their first or next purchase, is bound to have played a part [in the slump]. At the same time, inflationary pressures have pushed up monthly household costs, which can only have served to dent confidence.”

Regulation

Regulation, too, has made life more difficult for first-time buyers. The Mortgage Market Review, introduced in 2014, meant it became less easy for buyers to obtain a mortgage, although more recent new regulations have potentially had a more devastating impact on first-time buyers.

In 2014, the Bank of England stopped lenders from conducting more than 15 per cent of their lending above 4.5 times income. This had a disproportionate effect on first-time buyers, who typically had to borrow more in relation to their earnings.

The Bank diluted its rules slightly last year by allowing lenders to measure the loans over a rolling four-quarterly period. However, in June it beefed up its stress-testing requirements for borrowers. This means lenders must now apply a stress test of at least 3 percentage points above the borrower’s standard variable rate, which can total more than 8 per cent in some cases.

Unsurprisingly, sky-high property values and tougher regulation are pricing many buyers out of the market — particularly in London — and therefore are having a softening effect on prices, experts say.

Brexit

Another major factor behind the slowing of the market is Brexit. Since the UK voted in June 2016 to leave the EU, houses prices in London have fallen by 8 per cent. Many experts believe this is because the outcome of the vote has put off foreign cash buyers from purchasing top-end properties.

But surveyors say Brexit is also affecting regional housing markets across the entire country.

Each month, the Royal Institution of Chartered Surveyors publishes a residential market survey about the outlook for house prices and the wider housing market. In the latest Rics survey, a number of surveyors complain that the uncertainty around Britain’s future trading relationship with the EU is having a negative effect on consumer sentiment. In fact, there are 16 individual references to Brexit by surveyors around the UK.

There is nothing more uncertain than Brexit…. That said, there are still plenty of sellers and plenty of buyers

Peter Atkinson, a Yorkshire-based surveyor who responded to the Rics survey, said: “Brexit remains a shadow of uncertainty; over the short term the lack of development land supply remains a key issue, helping to stabilise prices.

Overall, economic uncertainty is having a negative impact on prices — except at the very top of the market.”

Another respondent, Joe Arnold, a surveyor in the South-east, said: “Brexit is still uncertain; uncertainty leads to inactivity. The lack of stock and activity will remain in balance for the year. Until we know the Brexit deal, the market will stumble along. [People are] uncertain of [their] job security, so they stay put.”

However, EasyProperty head of operations Adam Day thinks Brexit has slammed the brakes on the market but has not blown off the wheels. He says: “Uncertainty is what kills any market and there is nothing more uncertain than Brexit at the moment. Having said that, we haven’t seen a huge slowdown and there are still plenty of sellers and plenty of buyers.”

Coreco director Andrew Montlake says: “Brexit definitely had a destabilising effect and the political landscape in general was not one of smooth progress. House prices finally got to a point where many buyers thought they were just too high — esp­ecially in high-demand areas — and stamp duty costs, together with the prospect of getting a large deposit, caused issues.”

Buy-to-let

The fourth major factor impeding the market is the buy-to-let sector, with landlords hammered by increased stamp duty rates and a gradual reduction in the amount of interest they can offset against their mortgage payments. Add to that the tougher underwriting requirements that lenders must stick to when assessing portfolio arrangements and it is understandable that landlords have become cautious about adding to their range of properties.

The clampdown on buy-to-let is the biggest reason for the slowdown in the property market

The latest quarterly figures from UK Finance show that landlords purchased 56,100 homes with mortgages in the first nine months of 2017 — a decline of 32.2 per cent from 82,800 the year before. However, this is not a like-for-like comparison as there was a spike in activity in early 2016 as landlords rushed to beat the stamp duty hike.

Nevertheless, activity is down. In the same period of 2015 there were 85,900 purchases.

Perception Finance managing director David Sheppard says: “I would say the clampdown on buy-to-let is the biggest reason for the slowdown in the property market.”

Hollingworth says: “The buy-to-let market has been through substantial change that has hit landlords in wave after wave. That could not fail to hit the level of activity, which had been rising at a rapid rate.”

Prognosis

With such headwinds, therefore, what do the next few years hold for the housing market? More of the same, if you ask the experts.

Savills, the estate agent, believes house prices will rise by just 1 per cent this year, and by 2.5 per cent in 2019. It predicts a bigger increase in 2020, of 5 per cent, but then a dip to just 2.5 per cent in both 2021 and 2022 as predicted interest rate rises begin to hamper borrowers’ affordability.

Halifax has even raised the prospect that house prices will remain flat this year. It believes growth will be only “between zero per cent and 3 per cent [as] continuing pressure on household finances, together with affordability constraints”, limits housing demand.

Capital Economics, the macroeconomic consultancy, has slightly more optimism than Halifax but both predict slower growth than we have become used to in recent years.

Capital Economics says: “An improving economic backdrop will come hand in hand with rising interest rates. As a result, improving real wages and sentiment will be countered by higher mortgage costs. That will keep house price growth below 3 per cent a year in both 2018 and 2019, with London and the South performing the worst. And those same forces will prevent anything more than a modest improvement in transactions over the next two years.”

Despite the gloomy outlook for house prices, the Government’s pledge to build 300,000 homes a year by the middle of the next decade offers hope to first-time buyers.

At the same time, this group of customers should receive a boost as more landlords decide that trading conditions are too challenging to make buy-to-let worthwhile. A recent survey by the Residential Landlords Association claimed around a fifth of landlords were looking to offload properties in the year ahead.

However, even the impact of a flood of ex-rental properties is unlikely to make UK housing become instantly affordable for those currently priced out of the market.

Brokers feel the Government, in order to get the market moving again, should not only follow through on its pledge to build more homes but also reverse the measures recently taken against landlords and provide more help to first-time buyers.

Hollingworth says: “The strategy around affordable housing and the delivery of more new properties needs urgent attention if more people are to feel they can be homeowners.”

Sheppard says: “The Government has not had many good ideas for the property market of late and the small change to stamp duty is not enough in itself to get the market fully working.

“There needs to be consideration on what to do to help downsizing, and to roll back some of the tax hits to buy-to-let to at least give that market a bit of a boost.”

If the Government can improve supply and, at the same time, increase demand by making it easier for people to get on the ladder, the housing market can be made to work for both buyers and sellers.

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“While that will be music to the ears of first-time buyers, it will be a painful shock to sellers hoping to make a healthy profit on their home.”

I love getting people the best deal on the home they want to live in. I am glad if house prices stay at more sensible levels and there will be more first time buyers. Its a harsh enough world for young people today once they are out of the family home.